Why These Analysts Are Mixed Following Chico's Q3 Print

Chico's FAS, a specialty retailer of women's private branded clothing, reported its third quarter results after Tuesday's market close. The company earned $0.13 per share on revenue of $641.2 million, both short of the $0.20 per share and $666.7 million analysts were expecting. Shares of Chico's traded lower on Wednesday by more than half a percent even though two Wall Street analysts expressed a bullish view on the stock's outlook.

Kimberly Greenberger of Morgan Stanley commented in a note that Chico's "decisively" cleared through excess third quarter inventory with a "thoughtful" promotion strategy at a time when the overall business was not necessarily incrementally promotional year over year. Greenberger continued that Chico's third quarter gross margins ended the quarter flat year over year despite a "significant" sales miss. In addition, the company's third quarter inventories ended nine percent lower. Looking forward to the fourth quarter, Greenberger pointed out that a "clean inventory" and a $4 million tailwind from last year's higher air freight costs creates the potential for upside. However, the analyst noted that "no clear explanation" was offered for the third quarter "sharp" falloff in consumer spending. As such, the company needs to demonstrate a "more consistent" sales growth profile before becoming constructive on the stock. Shares remain Equal-weight rated with a price target lowered to $12 from a previous $18.

Liz Pierce of Brean Capital commented in a note that Chico's "disappointing" third quarter print was a function of an industry wide sector and macro weakness and not company specific. As such, the analyst reaffirmed the notion that the company is a "best-of-breed retailer" given its "strong" customer attachment, a disciplined operating philosophy and the potential to increase its market share from recent technology initiatives. Pierce expanded that traffic and warmer weather were the "primary pressure points" during the third quarter. However, the analyst pointed out that the company's momentum "improved" by the end of September with consolidated comps shifting into positive territory for October, but still not enough to offset earlier weakness. Pierce also pointed out new shareholder friendly initiatives that can further support shares: 1) the company's new $300 million share buy back program, 2) a $0.0775 per share dividend, and 3) an announcement that the company signed a non-binding letter-of-intent to sell the BP DTC business. Finally, Pierce stated that the company is still on track to meet its longer term objective of mid-tee earnings growth and double-digit operating margin. Shares remain Buy rated with a price target lowered to $18 from a previous $22.